NBFCs may lose taste for bonds

To safeguard the investor interest, capital markets regulator Sebi, earlier this month notified stricter norms for mutual funds, capping investment limit in bonds of a single company at 10 per cent

Non-banking financial companies (NBFCs), particularly housing finance companies (HFCs), may face slowdown in appetite for their bonds on revision of investment rules for debt backed mutual funds, India Ratings and Research (Ind-Ra) said today.

"NBFCs, especially HFCs are likely to witness a slowdown in the appetite for their bonds as a result of the recent revision of investment norms for debt-oriented mutual fund managers", Ind-Ra said.

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To safeguard the investor interest, capital market regulator Sebi, earlier this month notified stricter norms for mutual funds, capping investment limit in bonds of a single company at 10 per cent.

The present portfolio composition indicates the overall sector exposure for NBFCs and HFCs stands at nearly 30 per cent, and is broadly in line with the revised norms, suggesting that the incremental appetite is likely to be tepid at best, it added.

From end-December 2015 to end-January 2016, these houses have already aligned their portfolios leading to a spike in yields.

"Ind-Ra believes sectoral limits will be the key binding limit for asset allocation since fund houses' exposures to single and group issuers are largely within prescribed limits."

However, the impact of recent Sebi guidelines on corporate debt market would not be disruptive in near term, especially in light of the realignment already underway and a tepid issuance pipeline, it remarked.

Since NBFCs continue to grow, an uptick in issuances could reflect a higher cost of borrowings as the guidelines limit pro-cyclical exposures, it added.